When Sarah Goudie arrives with her bread-making ingredients, her clients, who are people with learning disabilities, are already looking forward to the day's activity.

"The people I see are able to work with a creative process and learn how to make bread, and see the end result of their work, and they always find it very satisfying and enjoyable," says Goudie.

Since setting up bread2share about 18 months ago, she has worked with clients who have a range of needs. "It can have therapeutic value for people with different conditions, for example, I was teaching an elderly man with dementia last week, and he was absolutely delighted when he made his first two loaves," she says.

Goudie is one of a growing number of people who have set up micro-enterprises – small businesses employing up to four people – in Dudley, West Midlands, to deliver more care to elderly people and other vulnerable groups. Goudie employs an assistant who has a learning disability.

Dudley council provided Goudie with financial and business support as part of a strategy to develop more personalised, community-based social care for adults.

In 2010, the council started working with Community Catalysts, a social enterprise that supports the development of micro-enterprises in social care. Community Catalysts' Lorna Reid was seconded to the council as a micro-services co-ordinator, offering support to about 40 micro-providers. She is now employed by the council in its commissioning team.

"My role is to give advice and support to micro-providers, some of which have not run a business before, and ensure they are providing a service that meets the quality standards of the council [as well as] advice on finance, business regulations and self-employment," says Reid.

The Dudley Innovation Fund awards "kickstart" funding grants of £2,000 and "progression" funds of up to £10,000.

Matt Bowsher, assistant director of quality and commissioning at Dudley council, says there is growing demand for a wider choice of social care services. "By providing £3.3m in grants to voluntary and independent sector organisations, we've helped to support about 19,000 people to remain in their own homes and to be as independent as possible," he says.

The Green Team is run by three former council employees who worked in a day centre for people with learning disabilities until it was closed down. They provide a weekly service to about 20 people with learning disabilities and mental health problems, teaching them to garden, grow fruit and vegetables, and provide maintenance work for the Dudley Canal Trust.

"We've taught people to swim, to cycle and to grow their own vegetables. They all love the activities and we have won a silver and gold award from the council for our service," says Wendy Bourne, one of the team leaders.

Other micro-enterprises offer art therapy, music workshops, shopping for elderly people and lunch clubs. The services are normally funded from clients' personal budgets or by direct payments.

Bowsher says restructuring of adult social care services some years ago led to a large number of inquiries about setting up micro-enterprises from former council employees. "Now we have local people with long-term mental health conditions who have set up businesses such as hairdressing, which they offer to elderly people and other groups," he says.

Dudley, in common with all councils, is faced with cutting adult social care budgets at a time of growing demand for services. It is estimated that by 2015, there will be about 4,400 people in Dudley with dementia and that by 2030, the figure will have risen by almost 50%.

Bowsher says micro-services can be more cost-effective than traditional registered care, but he says the focus should be on gaps in provision and flexible delivery, rather than saving money. At most, he says micro-providers will probably cover only about 10% of the council's services, so they wouldn't make big savings.

Community Catalysts is also working with councils in Wigan and Nottinghamshire. Sally Hobbs, head of community options at Wigan council, says it wanted to create a different relationship with the local community.

"We have completely redesigned our customer journey," she says, "so that when people contact the council we can offer them a range of services, including traditional social services support, with more individual services to help them stay independent for as long as possible, through our micro-providers."

Wigan hopes to have about 30 micro-providers. "They will always be in addition to mainstream services, but, in time, they may account for 15-20% of local needs," Hobbs says.

In Nottinghamshire, where Community Catalysts' Rebecca Stanley has been micro-services co-ordinator at the county council since 2010, there are 52 delivering services, including two former music and art teachers who are working with people with learning disabilities.

"We have a lot of our population in very rural areas, which we need to reach, and some large ethnic minority groups that require a different kind of service," says Stanley. "It's a way of people connecting with their local communities, and one of the best things is that public money goes back into the community and helps with local regeneration."